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Silicon Motion (SIMO) Q3 Earnings Beat, Revenues Up Y/Y

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Silicon Motion Technology Corporation (SIMO - Free Report) reported third-quarter 2020 non-GAAP earnings of 76 cents per American Depositary Share (ADS), which surpassed the Zacks Consensus Estimate by 11.8% and improved 10.1% from the year-ago quarter. However, the bottom line declined 6.2% sequentially.

Net sales (non-GAAP) increased 11% from the year-ago quarter to $126 million, outpacing the Zacks Consensus Estimate by 0.03%. Growth was driven by robust uptake of SSD controllers. However, the figure slumped 8% sequentially.

Quarter in Detail

Sales of SSD controllers surged 20% both, year over year and sequentially. During the reported quarter, the company’s PCIe Gen4 SSD controllers raked in new design wins from more than 10 customers, out of which five are NAND flash makers.
 

Notably, revenues from SSD solutions improved 50% year over year but declined 10% sequentially.

However, as anticipated, revenues from eMMC and UFS controllers fell 10% year over year and 50% sequentially, owing to “temporary customer inventory adjustment.” Management noted that revenues from SSD solutions were lower than projected.

Margins

Non-GAAP gross margin of 49.1% contracted 70 basis points (bps) on a year-over-year basis and 90 bps sequentially.

Non-GAAP operating expenses, as a percentage of revenues, came in at 26.1%, contracting 160 bps year over year. Further, the figure contracted 170 bps sequentially.

Non-GAAP operating margin expanded 90 bps on a year-over-year basis and 80 bps sequentially to 23%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, Silicon Motion had cash, cash equivalents, restricted cash and short-term investments of $368.4 million, compared with $379.7 million as of Jun 30, 2020.

The company generated $30.2 million cash from operations during the reported quarter compared with $25.7 million in the second quarter.

On Oct 25, 2019, the company’s board declared a new annual dividend of $1.40 per ADS, up from $1.20 in the past year. Quarterly installments to be paid by the company are 35 cents per ADS. Notably, on Aug 20, 2020, the company paid out $12.3 million as annual dividend to shareholders, which marked its fourth installment.

Markedly, on Oct 26, 2020, the company’s board of directors approved $1.40 per ADS of annual dividend, slated to be paid in quarterly installments of 35 cents per ADS — the first installment of which is scheduled to be paid on Nov 25, 2020.

Further, on Nov 21, 2018, Silicon Motion announced a new buyback program spread over a two-year period. Per the program, the company will repurchase approximately $200 million per ADS. In the reported quarter, the company repurchased $25 million of ADSs at an average price of $39.91 per ADS.

Under the buyback program, the company has repurchased shares worth $84.8 million of ADSs, with $115.2 million remaining untapped under the program. On Oct 26, 2020, the board of directors approved the extension of the conclusion of the program to Nov 21, 2021.

Encouraging Q4 Guidance

For fourth-quarter 2020, Silicon Motion expects non-GAAP revenues to be $130-$139 million. The Zacks Consensus Estimate is currently pegged at $129.3 million.

Non-GAAP gross margin is anticipated within 48-50%. Non-GAAP operating margin is projected in the range of 19.5% to 20.5%.

Fourth-quarter revenues are likely to reflect gains from recovery in sales of eMMC and UFS controllers and continued momentum in SSD controller sales. However, SSD solutions are anticipated to decline owing to seasonality. Also, underperforming Shannon SSD and Bigtera product lines remain concerns.

Notably, increased PC sales triggered by online learning and work-from-home wave hold promise. Additionally, positive trends in smartphone embedded storage transitioning from eMMC to UFS controller devices; and shift from HDDs to SSDs across PCs and other client devices bode well.

Zacks Rank & Other Stocks to Consider

Currently, Silicon Motion carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Qorvo (QRVO - Free Report) , Marchex (MCHX - Free Report) and NVIDIA Corporation (NVDA - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks (Strong Buy) here.

Both Marchex and Qorvo are scheduled to release earnings on Nov 4, while NVIDIA is slated to report on Nov 18.

Long-term earnings growth rate of Qorvo, Marchex, and NVIDIA is pegged at 12.35%, 15% and 20.07%, respectively.

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